Blockchain: Fairmint Proposes Urgent Framework for Private Markets to SEC

The world of finance is rapidly evolving, and blockchain technology is at the forefront of this transformation. While public markets benefit from established digital infrastructure, the vast realm of private markets often lags behind, relying on outdated systems. Recognizing this disparity, crypto-native companies are actively engaging with regulators to shape the future. Fairmint, a transfer agent focused on private securities, has taken a significant step by submitting a detailed proposal to the United States Securities and Exchange Commission’s (SEC) Crypto Task Force, advocating for a modern blockchain framework.

Why Private Markets Need a Blockchain Upgrade

Investing in privately held companies, or private equity, is a massive global industry. S&P Global reported the market size at $5.3 trillion in 2023, projected to hit $6 trillion by the end of 2024. Despite this scale, the back-end infrastructure for managing private securities remains fragmented and inefficient. Fairmint highlights that many private companies still manage crucial ownership data, known as cap tables, using simple spreadsheet software like Excel. This contrasts sharply with the sophisticated, regulated infrastructure available in public markets.

Fairmint CEO Joris Delanoue points out that managing “billion-dollar cap tables in Excel” creates unnecessary friction, compliance gaps, and hinders capital formation in the U.S. The current system is often expensive and lacks essential features like integrated settlement capabilities.

Fairmint’s Seven-Step Proposal to the SEC

Fairmint’s submission to SEC Chairman Paul Atkins and Commissioner Hester Peirce outlines a comprehensive framework designed to modernize private securities administration using blockchain technology. The proposal aims to standardize infrastructure, enhance regulatory oversight, and empower investors.

Key elements of the seven-step framework include:

• Standardizing infrastructure for seamless interoperability across different transfer agents and market participants.
• Introducing real-time regulatory observability enabled by blockchain, allowing regulators to monitor activity more effectively.
• Enabling investor self-custody of private securities with built-in compliance safeguards.
• Shifting investor accreditation standards from traditional income and net worth thresholds to knowledge-based criteria.
• Establishing a regulated decentralized finance (DeFi) sandbox to allow for controlled innovation and testing of new models.

This framework seeks to address the inefficiencies and compliance challenges inherent in the current manual, spreadsheet-based systems used in private markets.

Tokenization: The Future of Private Markets?

Fairmint’s proposal aligns with a broader trend towards tokenization, where real-world assets (RWAs), including private equity, are represented on a blockchain. The SEC’s Crypto Task Force has been actively exploring regulatory pathways for digital assets and recently held roundtables discussing tokenization and DeFi, signaling regulatory interest in these areas.

Major financial firms are also exploring the potential of tokenization. Retail trading platform Robinhood, for example, is developing a blockchain network to facilitate trading of U.S.-listed stocks for European investors and has indicated that tokenization, including that of private equity, is a key focus for the company’s future.

Tokenizing private securities could unlock liquidity, improve transparency, and reduce administrative costs, making these private markets more accessible and efficient for both companies and investors. Fairmint’s clients, such as wallet infrastructure provider Privy and social media platform Bloom Network, represent the types of companies that could benefit from a standardized, blockchain-enabled infrastructure.

Conclusion: A Call for Modernization

Fairmint’s detailed proposal to the SEC is a crucial step in advocating for the modernization of private markets through blockchain technology. By highlighting the inefficiencies of current systems and proposing a clear, seven-step framework, Fairmint is pushing for real-time oversight, updated investor standards, and increased efficiency. As the trend of tokenization gains momentum across the financial industry, regulatory engagement like Fairmint’s is essential to building a compliant and robust digital infrastructure for the future of private equity and beyond.